No Exit, No Entry

The demonstration by leftist trade unions in the capital last week was aimed mainly at the proposed change in the Industrial Relations Act. Today workers cannot be retrenched save with government permission (which is rarely given) in companies having over 100 workers. The new law will raise the ceiling to 300 workers. This, according to the labour aristocracy and its lackeys, is a recipe for reducing employment. Don’t believe this for a minute. All the evidence in India shows that where employers can retrench people, they hire the most workers. Where retrenchment is impossible, they try to avoid hiring altogether, No exit, no entry.

In other words, nothing will benefit industrial employment so much as easier exit. Look at the small-scale, where retrenchment and factory closures require no permission. The second census of small-scale industries is highly illuminating. Of the 10 lakh registered small-scale units, some are bogus, and the census was able to locate and get responses from 9 lakh. Of these no less than one third—301,390 units to be exact-were lying closed. The mortality rate of small units was very high-up to 27 per cent of new units closed within three years, and up to half within five years.

RETRENCHMENT: According to the propaganda of the labour aristocracy, such massive closure and retrenchment should have been disastrous for employment. In fact, between 1972-73 and 1987-88 (the two census years), employment in small-scale units shout up from 16.63 lakh to 36.66 lakh. This represented an annual compound growth rate of 5.46 per cent, almost thrice as fast as population growth (1.9 per cent).

What happened in the area dominated by the labour aristocracy? Just the opposite. In private organised industry, the growth of employment in the 1980s was barely 0.5 per cent per year. It was faster in the public sector, where over manning is chronic, and golden handshakes are now being offered to lakhs. Overall, employment growth in manufacturing was 1.4 per cent per year between 1973 an 1987, barely quarter of the growth rate achieved in the small-scale sector.

The main reason is the legislation of 1976 making it mandatory to get government permission (which is rarely given) for retrenchment. When a company is in financial trouble, it needs to cut its variable costs to stay afloat. This is why the world over companies prunes their labour in difficult times-this reduction in costs them solvent till good times return, after which they hire staff again. Easy retrenchment has no effect at all on long-run employment, as has been proved the world over.

But if a firm cannot retrench labour, as is the case in India, it will tend to fall sack in lean periods, since it cannot cut its variable costs. So firms avoid hiring a single person extra if at all possible. They mechanise to a greater degree than economics alone would dictate. And they sub-contract all possible service (like transport, canteens, maintenance) to small companies, limiting their own hiring to core manufacturing.

The reservation of some articles of manufacture for small-scale units has perhaps helped employment in small industries, but this must not be over stressed. The census shows that between 1985 and 1987, small –scale employment in non-reserved industries grew faster than in reserved ones.

LABOUR SCENE: The tragedy of the labour scene is that the labour aristocracy gets the lion’s share of total wages for relatively little work done. Unorganised workers in farms, mines and small industries work long hours for low pay. But public sector workers, accounting for only 6.8 per cent to total wages in 1980-81. At a time when no cash is available for expanding food-for-work schemes for the really poor, the government plans to spend a colossal Rs 10,000 crore (spread over several years) on giving golden handshakes to five lakh surplus workers in government employment.

We cannot have a laissez faire attitude to labour. We must have safety nets and retraining for those retrenched. We also need public investment in infrastructure and cheap finance in depressed cities like Ahemedabad, Kanpur and Calcutta so that workers moved out of unviable units can be redeployed in new, productive enterprises. Labour is a valuable resource.

I find hilarious the claim of left reactionaries that the proposed change in the labour law amounts to a curb on trade unions that actually threatens democracy. In fact retrenchment is banned only in Marxist states. I old-established democracies, retrenchment is not only permissible but seen as essential for economic health. According to Prof. Mrinal Datta Chowdhury, Zimbabwe is the only country in the world, apart from India and Marxist regimes, where retrenchment without permission id prohibited. So next time a left reactionary tells you a pack of lies about retrenchment being anti-democracy, laugh and offer him a one-way ticket to Zimbabwe.